Last Friday Ally Financial released its third quarter earnings report, and Q3 profits were strong and far exceeded analysts’ estimates. A few details from Ally’s earnings report may interest Ally Bank deposit customers. First, if you have a lot of your savings at Ally Bank, the Q3 earnings report indicates a financially healthy bank. According to this American Banker article on Ally:
Rebounding demand for cars — sparked by Americans’ reluctance to fly or take public transportation in the midst of the coronavirus pandemic — has driven auto loan originations at Ally Financial to a five-year high.
Auto loans contributed to large gains in both revenue and profit. Compared to Q3 2019, adjusted total net revenue was up 4%, and adjusted earnings per share was up 24%. So far Ally hasn’t seen a large increase in auto loan defaults. However, Ally does acknowledge the significant risk of rising defaults and has taken steps to handle this problem as the American Banker article describes:
Ally is anticipating a steep rise in losses, given the nation’s 7.9% unemployment rate, though not before next year. The company set aside $147 million in provisions for loan losses after stashing a total of nearly $1.2 billion in the first half of the year.
Taking precautions to ensure your deposits are fully covered
As I mentioned in previous posts, it will probably take one or two years before banks begin to be heavily stressed by the pandemic effects. It’s now a good time to ensure that your deposits are fully insured at Ally Bank and at any other of your banks and credit unions. In this April blog post, I reviewed several ways that you can maintain insurance on over $250k at any one bank. One common way is through the use of POD beneficiaries. However, there are risks when you use beneficiaries to extend your FDIC coverage. I reviewed those risks in that post.
Earlier this year Ally Bank emailed customers requesting that they provide social security numbers or tax ID numbers for their beneficiaries. An excerpt of this Ally email is shown below:
The FDIC has made updates, effective April 1, 2020, to its regulatory requirements for paying deposit insurance. To make sure you receive the maximum insurance coverage you’re entitled to, you’ll need to provide a valid Social Security number or Tax Identification number for each of your beneficiaries. Check out FDIC’s Part 370 Rule, recordkeeping requirements in section 370.4, for further details.
I researched this with my Ally Bank contact, and according to my contact, “the FDIC guidance does allow for other unique identifiers and we’re actually working to provide alternatives later in 2020.” I found this beneficiary election form at Ally’s website, and according to this form, additional options instead of a social security number or Tax ID number can be provided. These other options include an alien ID card #, driver’s license #, passport # or military ID.
It’s questionable if the new regulatory requirements could prevent a depositor with beneficiaries without unique number identifications from receiving the full FDIC coverage. Nevertheless, if you want to be safe, it would be a good idea to ensure your beneficiary information at Ally includes the requested identification numbers.
Insights into Ally Bank's deposit rates
In addition to financial health, Ally’s Q3 earnings report offers insights into Ally’s deposit strategies. One part of the report suggests financial conditions at Ally that should encourage higher deposit rates (or at least deposit rates that don’t fall as much as competitors). Ally was actually able to increase slightly the average yield on retail auto loans from Q2. According to the American Banker article:
Ally has been able to avoid yield compression in part because of its strong position in the used-car market, where interest rates tend to be higher than they are for new vehicles.
The one important financial condition that hasn’t encouraged Ally to keep deposit rates higher than its competitors is a steady and strong increase in retail deposits and customers. Banks don’t have to offer high deposit rates when deposit growth comes easy. From Ally’s Q3 earnings presentation, deposits grew to $134.9 billion, a year-over-year growth of 13%. The number of retail customers grew to 2.2 million, a year-over-year growth of 14%. This was Ally Bank’s highest third quarter growth.
On page 13 of Ally’s Q3 earnings presentation, a few interesting facts about Ally Bank deposits were presented. Average retail portfolio interest rate has fallen from 2.14% in Q3 2019 to 1.26% in Q3 2020. With Ally Bank’s Online Savings Account rate now at 0.60% and its highest CD rate now at 1.00% (5-year term), I’m sure this average rate will continue to fall in future quarters. Customers are holding more of their money in savings and checking accounts compared to CDs. The percentage held in checking and savings accounts increased from 49% in Q1 2020 to 56% in Q3 2020. The percentage held in CDs decreased from 38% to 34% during this same period. I think many customers have chosen not to renew their CDs as they mature. I wouldn’t be surprised if the percentage of funds in CDs continues to fall in the next several quarters.
Comparing Ally Bank rates with its competitors
Ally’s financial conditions may explain why Ally Bank’s deposit rates have remained on the high end as compared to its competitors. Below is a comparison of Ally and several of its main competitors on savings account rates and 5-year CD rates.
Savings Account APYs
5-year CD APYs
Let’s hope Ally and the other online banks don’t follow Capital One and Barclays with disturbingly low CD rates.